Question

The Tangier Company is considering eliminating the following product line: Product AXP Sales $ 49,000 Less variable costs: Raw materials 29,500 Direct labor 8,600 Contribution margin $ 10,900 Less fixed costs: Production costs allocated to products 16,800 Profit (Loss) $ (5,900 ) What amount of cost is avoidable if Tangier outsources production of this product

Answer 1

Answer:

$38,100

Explanation:

For avoidable cost, they are example of relevant cost. When a decision is taken , some costs are incurred in connection with such decision, they are known as avoidable cost.

The direct costs associated with a decision to produce are avoidable costs, which entails that such costs will not be incurred should Tangier company decides not to produce.

Therefore, the avoidable cost of Tangier is

= Raw materials cost + Direct labor cost

= $29,500 + $8,600

= $38,100